Dad suggested a few times in life to save for retirement. I kept myself busy skiing and adventuring so it didn’t seem that important at the time. When the time comes, social security will provide for my needs. . . Maybe. . . but what about my wants? What about my legacy? What about my money to spoil and spend time with my grandchildren (I’ve got 5 kids–you do the multiplier).
We’re a bit late in starting Baby Step 4: Invest 15% of pretax income into retirement savings but it is never too late. We started to save for retirement at 45.
I’m also going to put in a disclaimer here. I’m not a licensed financial or investing professional. I’m just a guy, a believer, a son, parent, and father. I’m not bad with math, spreadsheets, and databases either. So take this in context.
It Doesn’t Take Much $$$ to Save for Retirement
Saving only $100.00 per month for 40 years and investing it at only 8% and you’ll have $351,428.12 for your retirement. Up that to only $285.00 and you’ll be a millionaire! Dave Ramsey suggests you could do this and use 12% but most financial professionals I’ve spoken with say that is a bit generous. If you want to play with this spreadsheet for your own calculations, you can find it in my [google spreadsheets] and make a copy to set up your own scenarios.
The golden zone on the graph shows the millionaire status. Since we only have 20 years left, I need to find a rate of 9% OR I can invest $1,700.00 per month to reach millionaire status. I found those numbers by changing the top numbers on the spreadsheet until the 20 year number hits my target.
Do You Want to Be “Normal”?
Remember it is never too late. Also remember that this debt freedom and wealth building stuff IS NOT NORMAL. Who wants to be normal anyway. It’s time to be abnormal because the average American is in deep trouble. The Employee Benefit Research Institute’s 2016 retirement survey, here are some of the scary realities:
- Only 69% of workers have saved for retirement (down from 75% in 2009).
- 26% say they have less than $1,000.
- Only 21% of workers are very confident about having enough money for a comfortable retirement.
- Only 12% of retirees feel confident.
- 67% of retirees report their level of debt is “not a problem.”
- But only 44% of workers indicate that their level of debt is “not a problem.”
That is scary! How long is $1,000 in savings going to last? That is only a starter emergency fund from Baby Step One (check out all 7 Baby Steps: Baby Steps to Debt Freedom from Dave Ramsey). It won’t go far! The good news is that 66% of workers admit that their level of debt IS A PROBLEM. If that is you, get busy and sign up for Financial Peace University or join my Debt Freedom Mastermind.
So Lets Get Busy Saving for Retirement
First, you need to find a financial planner. I always thought I had to pay them so I was afraid of them. Turns out they’re “free”. OK, that is a bit of a stretch, there are a couple of ways that they get paid. The simple explanation is that take a bit of the money you have going in. When you are selecting a financial planner, this is a good evaluation tool: “can they describe the two methods of fees associated with mutual funds?” If they can explain it and dumb it down so I know exactly what they’re talking about. They win on point one. A second question I ask them is “What is your net worth?” It better be more than mine. If you’re just starting out it better be way more than yours. I also like to know where they stand on Dave Ramsey’s opinion.
Dave’s plan is drop dead simple. Here is my interpretation for someone who is a working employee:
- invest in company matching plans to the maximum of the match.
- invest in a Roth IRA to the max.
- invest in mutual funds.
Easy, huh? Split the money into four categories with 25% in each: growth, growth and income, international and aggressive growth funds. Your financial planner can help you in arranging this.
You don’t need to get fancy and complicated to save for retirement you gotta be the tortoise. Put in the years and get to Baby Step 7: Build Wealth and Give.
If you’re self employed and owning your own company there are some other options to consider: Solo 401-K for family business, SEP-IRA.
Multi Tasking The Rest of the Baby Steps
When you’re out of debt these steps go kind of quickly and often overlap. Four, five, and six can be worked concurrently and seven can be lumped in when 6 is done:
- Baby Step 4: Invest 15% of Household Income Into Retirement
- Baby Step 5: College Funding for Children
- Baby Step 6: Pay off the House
- Baby Step 7: Build Wealth and Give
After 15% is used to save for retirement, begin saving for college for the kids. Make a plan and once again, put in the right amount over time, 18 years. It works! Then dump any extra money you can squeeze out of the budget into the house. Once baby step 6 is conquered, continue building wealth with other investments and start increasing your giving.